Auto Insurance Explained: Understanding Your Coverages

Fran
Fran Majidi
July 26, 2019

If you have liability insurance, you will be covered for the other drivers’ losses and injuries up to limits if you caused an accident. The most commonly misunderstood fact is that your liability insurance does not cover damages to your car if you caused an accident. However, if you have collision insurance, you will be covered for repairs to your car even if you caused the accident. If you are sued by the other driver, you are also protected with your liability coverage.

There are many types of coverages, including comprehensive, gap and more. Gap insurance is a type of insurance that covers you when you own more money on your car loan than the value of the car. Often, cars cost more than the Kelley Blue Book value, which complicates matters if your car is declared a total loss. In the event that you total a car with an upside down loan, gap insurance would pay you the remaining balance of what you owe on the car after collision coverage pays out the car’s value.

The more insurance you have, the less likely that you will have to pay for any losses. However, sometimes it’s more cost effective to have less insurance, especially if your car has very little value. For instance, you don’t want to pay more in collision coverage a year than your car is worth because you will never get paid more than the car’s blue book value. Collision insurance is not required in every state but many people misunderstand its purpose. Collision will take care of your costs if the accident was your fault. It will only cover your car if you collide with another car or an object, like a pole or tree. It will not cover damages or injury to the other driver; your liability insurance will.

Comprehensive insurance also pays for losses if your car is stolen or damaged by anything other than a collision, including earthquakes, vandalism, theft, or storm damage. Hail storms, for instance, are a covered peril if you have comprehensive insurance. The repairs to the hail damage would be covered by your insurer. If you want coverage for your own medical costs after an accident, you may consider personal injury protection (PIP), which is required in some states but not most of them. With this coverage you may even have coverage for lost wages.

If you buy uninsured or underinsured motorist insurance (UM or UIM), you will be covered for medical expenses even if the other driver has no insurance. You have the option of suing the other driver if they carry no insurance but if they don’t have the money, you will be stuck with the bill. UM/UIM is required in 19 states. There’s also uninsured motorist property damage (UMPD) coverage, which pays for repairs so you don’t have to pay for damages to your car and personal belongings out of pocket.

Roadside assistance or towing insurance provides help for a battery jump, flat tire change or towing to a repair shop after a medical breakdown. Some people also opt for full glass coverage, which would pay to repair or replace chipped or broken windows without having to pay a deductible.

If you’re wondering who is covered in a hit-and-run accident, you should know that the rules for this vary from one company to another. Several types of insurance apply, including collision, uninsured and underinsured motorist and liability insurance. State laws also vary.

Rideshare insurance is also an important coverage to invest in if you drive for Uber or Lyft. There is a period of time when you’re accepting ride fare when you’re neither covered by your personal car insurance nor your employer’s insurance policy. Rideshare insurance takes care of this gap in time.

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